The Greek coalition party leaders carried through their capitulation to the Troika’s demand (see my post, Greek capitulation, 8 February 2012) by passing the terms of the new fiscal austerity package in the Greek parliament., The legislation was passed by 199 votes in favour to 74 against, with the party leaders expelling about 20 MPs from each of the two major parties who refused to vote for the deal, while ignoring the massive street demonstrations outside parliament. The Troika is now demanding that the party leaders commit themselves to implementing the measures whatever the result of the upcoming parliamentary election that the conservative New Democracy is demanding for early April.
As I explained in my last post (see above), the leftist parties that are opposed to the Troika deal are actually commanding around 40% of the vote in public opinion polls, enough to ensure the defeat of the existing coalition of conservative New Democracy, social democrat PASOK and far right LAOS (which has now quickly left the coalition). So it is very likely that the Greek people, the majority of which are opposed to the Troika’s measures, will vote out the capitulators. Remember under the deal, another 15,000 public sector workers are to lose their jobs with a target of 150,000 losses by 2015. There will be a 20% cut in the minimum wage, the end of job security and union rights, the sacking of all supply teachers in schools and massive cuts in health spending. Indeed, the Greek economy has already lost 500,00 jobs since 2008 and the share of employment among the working age population is now at it lowest since the overthrow of the military regime in the 1970s.
The shocking feature of this deal is that 90% of all these fiscal austerity measures are going to repay bondholders and not to promote economic growth or investment in jobs in the Greek economy. Instead. by the end of next year, real GDP in Greece will have fallen by 20%, almost three-quarters of the total decline during the US Great Depression (29%). The human cost of all this is difficult to comprehend. This has provoked even the conservative Archbishop of the Greek Orthodox Church to protest. Archbishop Ieronymos of Athens and All Greece sent a letter to Prime Minister Lucas Papademos saying that “the phenomenon of the homeless and the famished, a reminder of WWII conditions, has taken the dimensions of a nightmare,” adding that “the homeless increase by the thousands everyday, while small and medium-sized enterprises are forced to go out of business. Young people, the country’s best minds, choose to emigrate, while our fathers are unable to live after the dramatic cuts in pensions. Family men, particularly, the poorest, those with many children, wage earners, are in despair due to repeated wage cuts and unbearable new taxes. The unprecedented tolerance of the Greek people is being exhausted, rage pushes fear aside and the risk of social upheaval cannot be ignored anymore by those who are in the position to give orders and those who execute their lethal recipes.”
He went on: “in these difficult and undoubtedly, crucial times, we should realise that every Greek home is plagued by insecurity, despair and depression, which unfortunately, have caused, and sadly enough, continues to cause the suicides of those unable to bear the ordeal of their families and the pain of their children.” The Archbishop warned the ruling Greek elite that “it is obvious that the drama our country is experiencing will not end here but it could take up new uncontrollable dimensions.” The Archbishop then went on to condemn the Troika’s imposition of what is called ‘internal devaluation’ of Greek production costs (see my last post). “Even tougher, more painful and unfair measures are being demanded within the same ineffective and unsuccessful policy that is being followed. We are forced to have even larger dosages of a medicine that has proven to be deadly. We are being demanded to undertake commitments that do not solve the problem and only temporarily postpone the foretold death of our economy while, at the same time, we surrender our national sovereignty. They use as collateral our country’s wealth and the wealth that we can recover from our land and our seas,” The Archbishop added “the voices of the desperate, the voices of the Greek people, are being provocatively ignored in decision-making.”
He then outright opposed the deal with the Troika: “Greece will be able to make it if it will resist the blackmail that comes from abroad and rejects these deadly recipes … the Greece of culture, history and traditions cannot be lost because a few believed that this is possible.” Such is the opposition of the majority to this capitulation to the Troika that it is no wonder the Greek police union has threatened to issue warrants for the arrest of the EU and IMF Troika officials! The police unions stated that it “refuses to stand against” fellow Greeks. And yet the coalition leaders continue with the mantra that THERE IS NO ALTERNATIVE (TINA) , the infamous slogan of the UK’s ‘Iron Lady’, Margaret Thatcher, when her government carried through the rape of British industry in favour of a rentier economy and the bankers in the 1980s.
The irony is that, once the proposed ‘voluntary’ default agreement on Greek government bonds is implemented by getting Europe’s banks and pension funds to agree to a ‘haircut’ of up to 70% in the value of the bonds they hold in return for new Greek bonds and a cash sweetener worth €30bn, Greek government debt will still be around 140% of GDP, more than double where it is supposed to be under Eurozone rules. And up to 80% of that debt will now be owned by the official creditors (the EU, the ECB, the IMF and the EFSF). The banks and pension funds will have been paid off (even if they take a small hit) and the Greek banks will be bailed out with public money to the tune of another €30bn. The remaining problem will now be with the Greek people and Eurozone taxpayers.
In Greek myth, Sisypheus was a king punished by being compelled to roll an immense boulder up a hill, only to watch it roll back down and to repeat this throughout eternity. This is what the Troika is asking the Greeks to do now. The policy of austerity being imposed won’t work, as the Archbishop says. The model that the EU and the IMF are following is that of Latvia. Latvia is a small Baltic state with a currency that is pegged to the euro. During the Great Recession, foreign creditors stopped lending to the small country. Latvia’s leaders, on the advice of the IMF, decided to maintain its currency peg and reduce costs to get ‘competitive’ by ‘internal devaluation’. As a result of public spending cuts, tax increases and the slashing of wages and employment, Latvia suffered the worst loss of output in the world during the Great Recession, a fall of 24% of GDP. Unemployment rose from 5% to 20%, as it has now reached in Greece. Unemployment would have been closer to 30% if some 10% of the labour force had not left Latvia for other parts of Europe looking for work. Latvia’s small population fell 120,000.
Did the policy of internal devaluation restore Latvia’s fortunes? No, employment is still some 15% below its peak in 2007 and three years after the crisis, Latvia’s GDP is still 21% below its peak. It would have been worse but the Latvian government finally decided to stop further its fiscal austerity measures in 2010 and the economy began to make a small recovery last year. Despite a drop in unit labour costs of over 21%, net exports (after imports) have still made little contribution to economic growth. So internal devaluation has achieved nothing. Of course, this does not mean to say that if the Latvians had adopted a policy of devaluing their currency and expanding spending, that Latvia’s small capitalist economy would have been in great shape by now. Latvia is not Argentina, where devaluation and state spending (and outright government debt default) did enable a significant economic recovery after the deep recession and crisis of 2001 (at a time when the rest of the world was not in deep recession too). It’s quite possible that if Latvia had adopted the Argentine solution, it would have ended up defaulting on its debts and would have needed a bailout from EU and IMF money that may well have not been forthcoming.
The choice for weak and small capitalist economies like Greece or Latvia is fiscal austerity or devaluation (but probably both) or a willingness on the part of the stronger capitalist economies to subsidise the weak. That is the issue for the Eurozone leaders with Greece. In a way, this is a political issue for European capitalism. If the strong capitalist states want to ‘unify’ Europe through a federation with fiscal and monetary transfers, they must pay a price in transferring back some of the surplus value they have captured through trade and capital flows out of the weaker states.
Take the UK. This is a centralised nation state. But regions like London and South East capture most of the value generated by the workforce. As a result, London’s tax revenues constitute 45% of its regional GDP compared to public spending of 35%, a surplus of 10% of regional GDP compared to the national figure of a 10% deficit. The North East of England raises only 29% of its region’s GDP in revenues while public spending reaches 62% of GDP, a deficit of 33%! Wales, an annexed province of the UK from medieval times raises only 30% of its GDP in taxes but spends 66%. Northern Ireland, another annexed part of the UK from the 16th century, raises 27% and spends 67%. Thus the weaker region shave to be subsidised by the nationbal government to balance their books. The British ruling class and the bulk of British citizens allow these fiscal transfers because they see the UK as a unified country or state that they wish to preserve. If the political will changed, then maybe some of these ‘deficit’ regions would be ‘let go’ (the Scots are thinking about doing so anyway).
Is there political will on the part of Europe’s ruling class and the citizens of Germany to go on subsidising Greek capitalism while forcing it to accept bitter poison? Greek capitalism is too weak to get out of this debt crisis on its own either through fiscal austerity and cutting costs internally or by devaluation and export growth. So either the EU leaders must agree to subsidise economic recovery with more funds or they must cut Greece loose to its own fate. Up to now, the EU leaders have been reluctant bail Greece out or to cut it loose. To do the latter would set a precedent for other weak EU states and damage the status of the currency in world markets and the EU on the world political stage. Remember what EU Commissioner Joaquin Almunia said at the start of the Greek debt crisis back in May 2010: “Greece will not default. In the euro area, default does not exist”. But now a default agreement will be implemented this week.
Whatever the Greek coalition leaders agree to and try to implement, such is the weakness of Greek capitalism, it will not be able to meet its fiscal targets or get its debt down to reasonable levels. Before the end of the year, the Troika will have to report that Greece is not delivering. Then the EU leaders will have to decide whether they ‘let Greece go’ or not. The EU leaders have agreed to more money for Greece (or more accurately its bondholders and banks) in return for draconian cuts in living standards in order to provide more time to try and ‘ring-fence’ other vulnerable Eurozone states like Portugal and Ireland (where they are preparing extra funding). So when Greece goes down, it will not affect the rest (or so the EU leaders hope). Of course, the Greek people may force the issue earlier if they vote in an anti-Troika government in April.